Posted on 09/30/2005 11:54:00 AM PDT by SirLinksalot
The Great jobs switch
Sep 29th 2005
The fall in manufacturing employment in developed economies is a sign of economic progress, not decline
THAT employment in manufacturing, once the engine of growth, is in a long, slow decline in the rich world is a familiar notion. That it is on its way to being virtually wiped out is not. Yet calculations by The Economist suggest that manufacturing now accounts for less than 10% of total jobs in America. Other rich countries are moving in that direction, too, with Britain close behind America, followed by France and Japan, with Germany and Italy lagging behind (see article).
Shrinking employment in any sector sounds like bad news. It isn't. Manufacturing jobs disappear because economies are healthy, not sick.
The decline of manufacturing in rich countries is a more complex story than the piles of Chinese-made goods in shops suggest. Manufacturing output continues to expand in most developed countries—in America, by almost 4% a year on average since 1991. Despite the rise in Chinese exports, America is still the world's biggest manufacturer, producing about twice as much, measured by value, as China.
The continued growth in manufacturing output shows that the fall in jobs has not been caused by mass substitution of Chinese goods for locally made ones. It has happened because rich-world companies have replaced workers with new technology to boost productivity and shifted production from labour-intensive products such as textiles to higher-tech, higher value-added, sectors such as pharmaceuticals. Within firms, low-skilled jobs have moved offshore. Higher-value R&D, design and marketing have stayed at home.
All that is good. Faster productivity growth means higher average incomes. Low rates of unemployment in the countries which have shifted furthest away from manufacturing suggest that most laid-off workers have found new jobs. And consumers have benefited from cheap Chinese imports.
Yet there is a residual belief that making things you can drop on your toe is superior to working in accounting or hairdressing. Manufacturing jobs, it is often said, are better than the Mcjobs typical in the service sector. Yet working conditions in services are often pleasanter and safer than on an assembly line, and average wages in the fastest-growing sectors, such as finance, professional and business services, education and health, are higher than in manufacturing.
A second worry is that services are harder to export, so if developed economies make fewer goods, how will they pay for imports? But rich countries already increasingly pay their way in the world by exporting services. America has a huge trade deficit not because it is not exporting enough, but because American consumers are spending too much.
A new concern is that it is no longer just dirty blue-collar jobs that are being sucked offshore. Poor countries now have easier access to first-world technology. Combined with low wages, it is argued, they can make everything—including high-tech goods—more cheaply. But that's only partly true. China's comparative advantage is in labour-intensive industries; and a basic principle of economics, proven time and again, is that even if a country can make everything more cheaply, it will still gain from specialising in goods in which it has a comparative advantage. Developed economies' comparative advantage is in knowledge-intensive activities, because they have so much skilled labour. For years to come, China will be more likely to assemble the best computers than to design them.
Employment in rich countries will have to shift towards higher skilled jobs to maintain economic growth. Countries that prevent this shift taking place risk being left behind. Rather than block it, governments need to try to ameliorate the pains which change inflicts by, for example, retraining or temporarily helping those workers who lose their jobs.
People always resist change, yet sustained growth relies on a continuous shift in resources to more efficient use. In 1820, for example, 70% of American workers were in agriculture; today 2% are. If all those workers had remained tilling the land, America would now be a lot poorer
They have been saying land war fighting is obsolete for the last 60 years and the wars since then have always devolved to boots on the ground, sand, swamp....
Wars have only devolved to "boots on the ground" because we don't fight real wars anymore -- we only take sides in civil conflicts. That may sound flippant and cavalier, but almost every U.S. military engagement since World War II has fit this description -- including some you don't hear much about (like the joint U.S.-British operation in 1953 to topple the Mossadegh government in Iran).
"to purchase our services and the things we produce best"
What it that really though? Seriously. What is our (the US's) core competency? It used to be science, invention, etc... But a lot of that is coming from overseas now too.
In the long run (and I mean really long) I think our claim to fame may end up being food. Think about it. As other countries develop and can therefore actualy pay for things, their desire for a higher quality food supply will increase apace. What can we still do better than anyone else in the world? Farm. Our farm productivity puts the rest of the world to shame - partly because of our technology, but also because of our land and climate.
And in the long run, isn't food the most essential commodity after water?
Other than that, I honestly don't see anything else we have as a national competetitive adavantage.
Lord knows our people are not the hardest working, and increasingly not the best educated.
I'm glad I'm old...
Pee on your head and tell you it's raining bump.
"Extremely talented programmers jumping from one company to another depending on who can give him the best incentive."
You're right. Eventually it will all take care of itself that way - as they should. Unfortunately, between now and then things don't look so great for the American worker.
That's a good point. A lot of people may cringe at some factory guy making $40 - $50k a year, but would they rather have him collecting welfare?
They started out with a decent idea-- that the switch of emphasis from manufacturing to services is like the previous switch from farming to manufacturing. Where they go down hill is with making up numbers (common Economist problem). The say that manufacturing jobs are "down" or "lost". OK, call me picky-- manufacturing employment has dipped from its 2000 peak; but it's up from 2003 and higher than '93. As a percent, the CIA Factbook puts US manufacturing as 20%, double the Economist figure, and agriculture at less than a percent-- half the 2% the Economist tossed out.
These foreigners may be OK for say, gardening or making cars, but for data collection we simply have to do it ourselves if we want it done right.
I'm in the same business and have had a similar experience (parachuting in after the fact). The thing is, you have to realize those folks will get better in time. Its just growing pains for them right now.
Sure some of companies that sent work over there will get burned bad enough to not try it again. So I imagine there will be some pendulum effect - just like there was in manufacturing and Mexico. But some of that work is never coming back. Ever.
I hear you - I'm getting laid off next spring. The company that bought my company has all their tech support in India.
They are also the most screwed up company I've ever dealt with - our users keep coming down to us saying "we never realized how good we had it with you guys" now that they've started having to deal with India on some things. We give very prompt service, go above and beyond, and we speak English that's understandable.
But we're too expensive so who cares if the India quality sucks /sarcasm.
LQ
"..reminds me of what happened to Japan in the late 1980's.."
Exactly. And what went up had to come down... But not to its original level. Look how many cars, electronics, etc, they still supply to us today.
ALL the work in our country won't be outsourced, but some significant chunk will. And some significant chunk of that will never come back.
"This is true. In 1939 the USA had less than 4,000 aircraft registered, both military and commercial. In the month of April, 1945, America produced over 4,500 aircraft in just that month alone. Even accounting for the differences in the complexity of propeller aircraft to jets, the equivalent level of production, adjusted for technology, could not be achieved by the US in 5 years. Even with the Chinese, supervised by American lawyers, programming the computers."
Correct. We couldn't afford to build 4,500 airplanes per month at USAF prices, anyway.
The Air Force is pricing itself out of business.
"Bottom line: American Automation Engineering can still lose to dirt-cheap labor"
Yup. I've seen that too. Why invest in automation when Chinese are a buck an hour or whatever?
Can't really blame 'em, I guess.
Clearly the situation differs with each employee and each job. But the fact remains that workers need to improve their talent and capability as they age. I am on record with the idea that in general outsourcing falls far short of what is expected. But a person within ten years of retirement has made a mistake if he/she has not planned to be in a place in his career that his employeer would be willing to let him go.
'' I'm sure they'll get better over time though ''
Ya see, I am not sure about that.
I have found that the Asian cultures do not rate "technical expertise" as high as "manages many people" and so their engineers get "adequate", maybe even "pretty good" and then either get promoted to management, or leave for a management job somewhere else.
In R&D, you need good entry level guys to do the grunt work, experts to ensure that they are doing good technical work and making good technical decisions, and architects to put the whole solution together in an efficient and well designed way.
Culturally, they have a hard time with that.
One could argue that Japan has a culture that promotes expertise, however, it is a depth expertise that does not lend well to large projects with multiple threads of technology interleaved. Their expertise is great for doing super-detailed design of a particular technology, but less so at broad technology applications.
Pure bullcrap. There are only 3 fundamental ways to create wealth. (not money) Mining/oil drilling, Agriculture/logging/fishing, Manufacturing. All the rest is merely paper snuffling or shuffling paper banknotes from one pocket to another
Boy, there is a book's worth of economic theory in those two sentences.
" and then either get promoted to management, or leave for a management job somewhere else. "
Yeah, but you know we saw that here too during the tech boom.
I guess time will tell re relative cultural strengths. When you look at Indians for instance, you sure do see a lot of Indian doctors...
I hate to jump into someone else's conversation, but I will anyway. Refining oil is a manufacturing process. You take a raw material (crude oil) and process it into a finished product (gasoline, kerosene, and other chemical products), and that is the essence of manufacturing in nut shell.
Unless, of course, that enemy is China, Indonesia, or Malaysia, in which case, we are series FUBARed.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.